Caesars reaches agreement on debt restructure

The company needs the support of the creditor group in order to impose a reorganization that may offer little recovery for lower-ranking creditors.

Under the plan being negotiated by first-lien bondholders including Paul Singer’s Elliott Management and Pacific Investment Management, the casino company would put its Caesars Entertainment Operating  unit into Chapter 11 proceedings as soon as Jan. 14, the source revealed, asking not to be identified because the negotiations are private.

Caesars Entertainment, the parent company, rose 3.9 percent after trading ended on the New York Stock Exchange yesterday to US$ 11.57. It fell 3.5 percent in the regular session. Caesars, acquired privately by Leon Black’s Apollo Global Management and TPG Capital for US$ 30.7 billion in 2008, has lost money every year since 2009. It has been trying to remain solvent ever since by refinancing debt and shuffling assets.

'Really Safe’

A mid-January filing would give enough time to assure the senior creditors that they could receive cash pledged by the company last month without being challenged by warring groups in bankruptcy proceedings, the people said. A transfer of assets, including a lien on cash, needs to be done at least 90 days before a Chapter 11 filing.

“They have to make first-lien creditors believe it’s going to be really safe when they file,” Ronald Mann, a professor at Columbia University Law School, said in a telephone interview. “The creditors have a lot of control here. If they can’t get first-lien creditors to go along, they will have a real problem.”

Gary Thompson, a spokesman for Las Vegas-based Caesars, Francis McGill, a spokesman for Apollo at Rubenstein Associates, and Lisa Baker, a spokeswoman for TPG at Owen Blicksilver PR, declined to comment on the restructuring talks. Stephen Spruiell, a spokesman for New York-based Elliott, also declined to comment. Dan Tarman, a spokesman for Newport Beach, California-based Pimco, didn’t respond to messages seeking a comment.

6-Month Swaps

The gap between the cost to insure against a default on Caesars for six months and five years has collapsed, a sign investors are girding for a bankruptcy. Six-month swaps on the debt are trading at 63.5 percentage points upfront, meaning buyers would pay $6.35 million to insure $10 million of debt for six months, while five-year swaps are trading at 78.9 points, according to data provider CMA. The price of six-month swaps has increased from about 24.3 percentage points upfront on July 24, CMA data show.

The operating unit’s first-lien bonds are all trading at about 75 cents on the dollar, a sign that investors are speculating on recovery prospects rather than interest and principal payments. In May, the bonds were as much as 13 cents apart.

A Jan. 14 filing would give the company a one-day window to avoid a payment of about US$ 225 million on second-lien bonds, the people said. The payment on US$ 4.5 billion of 10 percent second-lien notes maturing December 2018 is due Dec. 15, with a 30-day grace period. Missing the payment might trigger an involuntary bankruptcy.

Term Sheets

Caesars has sent term sheets to first-lien bondholders as the restructuring talks with the most important group progress to negotiations of details that will govern new debt, cash and other to be given to creditors, the people said. Term sheets are documents that describe the company’s revised capital structure. They serve as precursors to a plan-support agreement, the document creditors sign to show they will vote for the company’s restructuring proposal in bankruptcy court.

First-lien bondholders have sought to extract a recovery of about 90 cents on the dollar from Caesars Entertainment Operating Co., the people said. The reorganization proposal will give them a combination of cash, new securities and a form of equity from the unit, they said.

A separate group of senior creditors that owns the operating company’s term loans is continuing to consider the broad points of the restructuring plan.